BHP gives good dividends
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Christine St Anne is Morningstar's online editor.
Corporate democracy was on full display at the BHP Billiton (BHP) annual general meeting (AGM) last week.
Amid the shouts and screams from sartorially challenged environmental activists, a number of shareholders voiced concerns - even anger - over BHP's dividend policy.
The formal presentation from BHP chief executive Marius Kloppers was met with derision from one particular shareholder.
The shareholder labelled the presentation as simply an exercise in "flowery language" and accused the "so-called globally diverse organisation" of rewarding its shareholders with "lousy and miserable" dividends.
The Australian Shareholders' Association (ASA) was a little more subdued in voicing its concerns.
In a question to BHP chairman Jac Nasser, a representative from the ASA said while the group was largely pleased with the large cash flows generated by the mining giant, it would like to see more of that cash flow returned to shareholders, rather than it being spent on new and expensive projects.
Getting the balance right
Nasser was direct in his responses, particularly to the cranky investor. He said: "While I hear your views, I do not agree with the arithmetic."
Nasser said BHP has paid out US$6 billion in dividends, putting the company above its peers.
"It's not a free lunch. If you pay more dividends, you either increase your debt or invest less. We want to reinvest back in the business. We have first-class assets in the world and we want to continue to be a growth business," he said.
He said many shareholders both he and Kloppers had spoken to had a similar view.
"We have got the balance right. We reward investors with dividends and buybacks and make good investments in the business. It has been a good strategy. If you want to pay more in dividends then you have less growth," he said.
BHP, like other resource stocks, is not exactly known for its high dividends, especially when you compare both the company and the sector to other areas like banking or telecommunications.
There has also been some disquiet about whether the company is positioned to pay more out in dividends despite the growth challenges.
Morningstar global head of basic materials, energy and utilities, Mark Taylor, understands BHP's dividend policy and does not have a lot of sympathy for those disgruntled shareholders.